SEC Revokes SAB 121 Policy Allowing Banks to Custody Crypto

The SEC announced Staff Accounting Bulletin (SAB) No. 122, canceling the previous guidance under SAB 121, which discouraged banks from holding Bitcoin in custody.

This means banks and traditional financial institutions can now offer crypto services without significant regulatory hurdles.

US Banks Can Custody Bitcoin 

SAB 121 required companies holding crypto-assets for their customers (like exchanges) to recognize both an asset and a liability for those holdings on their balance sheets. 

Now, companies can evaluate their obligation to safeguard these assets differently, specifically through contingent liabilities, such as potential losses due to theft or fraud.

“Bye, bye SAB 121! It’s not been fun | Staff Accounting Bulletin No. 122,” SEC commissioner Hester Peirce wrote on X (formerly Twitter). 

In simple terms, SAB 122 removes the rigid requirement for banks to record customer-held crypto-assets, like Bitcoin, as liabilities on their balance sheets. 

This change simplifies compliance, reducing the financial burden and capital requirements previously associated with crypto custody under SAB 121.

“Didn’t even need an executive order! Thank you Hester Peirce and Chairman Uyeda! This was the correct decision IMO,” wrote ETF analyst James Seyffart. 

Overall, the new guidance allows more banks to offer Bitcoin custody services safely and feasibly by allowing them to account for only potential losses as contingent liabilities.

Essentially, banks can now hold and safeguard crypto for their customers as they see fit. Companies have the freedom to decide if they need to recognize a liability for safeguarding risks and how to measure it. 

US Crypto Regulations are Shifting

The crypto community has become euphoric with this news. For years, US banks have wanted to custody Bitcoin but couldn’t. MicroStrategy’s Michael Saylor also shared his excitement on social media.

Back in May 2024, both the House of Representatives and the Senate passed a resolution to repeal SAB 121. However, President Joe Biden vetoed this resolution. 

The decision comes after the SEC established a crypto task force led by Hester Peirce yesterday. The government has made a wave of pro-crypto announcements today.

Earlier, President Trump signed the first crypto-related executive order, suggesting the US establish a digital asset stockpile. 

Overall, it seems that the US crypto regulatory space has finally shifted, and crypto companies are likely to see major growth in the country. 

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